There are a surprising number of small businesses in Canada, particularly within the trades.
Setting up as an independent trades contractor is a very simple process for someone with the trade qualifications. It’s easy to lease a truck, you probably have most of the tools, and away you go doing services and retrofit in residential or light commercial work.
The freedom of being your own boss is intoxicating, but even the best of hangovers wear off and we have to realize that we are not only plumbers, HVAC experts, or insulators; we are also business people and need to put that hat on from time to time.
Running a small contracting business with one or two helpers and your spouse helping out with the paperwork is a very common scenario. There is nothing wrong with doing this but most of us could do it a bit better. Here are some guidelines to help you make more money and have more fun.
First of all, if you are going to stay as a “one or two person” business you have really bought yourself a job not a business. You can’t get fired; you have a number of clients and can replace any you lose, and you are not answering to a boss.
Most contractors tell me the reason they started their business was because they were either unemployed or did not like the working environment they were in. Very rarely will someone say I left a great job making good money to start on my own. They tend to be running away from being an employee and see their own business as the best way out.
Many of them are right, but unfortunately many end up not being nearly as successful as they should be.
In this two-part article we will cover of some ideas that can help the small contractor become more successful.
I believe the two most important traits for an independent business person are self-discipline and common sense. I recall someone saying to me about one of our local politicians: “he has lots of common sense; he must have because he hasn’t used any of it yet.” There are certain things you have to do each day/week/month/quarter and annually. If you do them as you go, they won’t pile up and you will have less stress and make more money.
The following items are in no particular order but all need to be addressed, except for the fact that you should start off by getting a business licence.
Bookkeeping: If your spouse is going to do the bookkeeping make sure she understands what’s involved. If not, get a qualified bookkeeper to set up your systems and to do a monthly or quarterly review. Programs like Quick Books and Sage 50 are the two least expensive programs that would meet your needs. Keep your records up to date.
CRM Program: CRM stands for customer relationship management software. There are a number of those programs on the market. Zoho and Insightly are two that work for small businesses. Use your search engine to see what program might work best for you. Don’t go fancy.
Pricing work: Don’t try to be cheap. It won’t get you much work. It will get you the price conscious, high maintenance customers. Focus on providing value and charge for all the services you provide and don’ t forget to charge for using special equipment and for supplies.
Develop checklists for getting more work from each customer and make it a goal to get virtually every customer on to an annual service plan.
Take at least two hours every week to review every invoice and work order to ensure you charge the full fee on each; and, two hours thinking about and implementing improvements you could make in the business (this is where the self-discipline really comes in, because without action there is no change). Ideally, use quoted prices or flat rate pricing as much as possible; this reduces the paperwork. Anything that you can do to reduce your time doing support work is good.
Building a business is a little like filing a bathtub. It happens gradually, but it will take a lot longer if the stopper is leaking. There is no sense in bringing in five new customers if four of the old ones are leaving. Make sure you keep the leak plugged by ensuring your customers are delighted with your service. Sixty-nine percent of the time when customers change suppliers it is because of perceived indifference. Ask your new customers why they chose you over someone else and make sure that you are true to that reason.
Often, when starting up our businesses we just use our name and off we go. There are some considerations we need to put in place. First of all we need to ensure we can use the name we pick. Use your search engine to see if anyone else is using it. Go to your local Chamber of Commerce they will help you register your name. It is frustrating to find you have spent money on signage, business cards, and websites only to be told that the name belongs to someone else.
Starting off as a sole proprietor or as a partnership is often a good way to go initially. But as we progress we need to consider the advantages of forming a company.
Whichever way you go the biggest problem I see with many start-ups is that they don’t put aside enough money to pay their commitments to PST/GST/HST/Worksafe premiums and the personal tax liability that comes at the end of the year for the owner. By not setting aside enough money for these expenses most contractors dig themselves into a hole that takes several years to dig out of and they end up paying significant amounts in penalties and interest and often get audited.
In part two of this article we will deal with the issues that you are likely to face with the Canada Revenue Agency and Trust Liabilities and how to deal with them in the most effective manner. Staying under the radar with CRA is critical and we will explore how that is best done. See you in part two!
